March 11, 2013
Now that we are deep into proxy season, companies and their advisers are no doubt consumed by issues that are likely to arise during this corporate governance cycle. Perhaps at top of mind to legal counsel are proxy access proposals.
It’s been more than a year since the Securities Exchange Commission (SEC) gave shareholders permission to submit and vote on proxy access proposals – proposals that allow shareholders to include director nominees in company proxy materials. Firms can start digging through the successes and failures of last year’s corporate governance season for insight on how to manage such proposals this year.
A look at last year’s results reveals that, although the SEC’s adoption of Rule 14a-8(i)(8) in 2010 was expected to create an influx of proposals, shareholders submitted fewer than 30 in 2012 – the majority of which weren’t even passed.
As part of a series of articles analyzing proxy issues for Business Law Currents, Pamela Park examined how the SEC has responded to the access proposals, and the differences between proposals that succeeded and those that didn’t. Proposals that included higher ownership thresholds for proxy access rights, such as requiring shareholders to own at least 3 percent of the company’s shares for at least three years prior to submitting nominees for inclusion in the company’s proxy statement, were the most successful. Companies that sought exclusion for proposals by following the SEC’s no-action process were largely successful when their arguments were based on technical reasons (e.g., the proposal was not specific enough about the eligibility requirements for shareholders to submit nominees in the company’s proxy statement).
In addition, the piece highlights insights from ISS, which looked at proxy access proposals on a case-by-case basis. ISS found that certain elements of the proposals were more important for investors and issuers than others. The most important were:
- ownership and duration thresholds;
- capping the number of board seats subject to shareholder nominees;
- the company’s governance practice; and
- the proportion of directors shareholders may nominate in an election.
Companies and their advisers should expect that shareholders will use this knowledge from 2012 to strategically formulate proposals that are more likely to survive scrutiny by the SEC and receive shareholder support in 2013 and beyond.